The US Securities and Exchange Commission (SEC) has reached a settlement with crypto lending firm Abra. The charges claim Abra failed to register its crypto asset lending product, Abra Earn. The SEC also settled charges against Plutus Lending LLC, Abra’s parent company, for operating as an unregistered investment company.
SEC’s Allegations
Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, said:
“As alleged, Abra sold nearly half a billion dollars of securities to US investors without following registration laws. These laws ensure investors get accurate information to make informed decisions.”
Abra launched Abra Earn in the US around July 2020. This program allowed investors to lend crypto assets for variable interest rates. By the time of the SEC’s investigation, Abra Earn had about $600 million in assets, with nearly $500 million from US investors.
Misleading Marketing and Unregistered Status
The SEC alleges that Abra marketed Abra Earn as a way for investors to earn interest “auto-magically.” Abra reportedly used investor assets to generate income and fund interest payments. The SEC claims Abra Earn was sold as a security without an SEC registration exemption.
Additionally, the SEC says Abra operated as an unregistered investment company for at least two years. During this period, Abra held over 40% of its assets in investment securities, including crypto loans to institutional borrowers.
Abra agreed to settle the charges without admitting or denying the allegations. The settlement includes an injunction against future registration violations. The court will determine civil penalties.
Previous Regulatory Issues
On June 15, 2023, the Texas State Securities Board issued an emergency cease and desist order against Abra. The regulator accused Abra of fraud for presenting itself as a “crypto bank” without a Texas bank charter or FDIC insurance.
The Texas regulator also found Abra and its CEO, William “Bill” Barhydt, “collectively insolvent or nearly insolvent” during an investigation on March 31, 2023.
Later that month, Abra settled with 25 US states. It agreed to repay $82 million to customers whose withdrawals were frozen, avoiding $250,000 penalties per state. Abra also agreed to stop accepting crypto allocations from US customers starting June 15, 2023, and to refund US customer balances.
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